Ceconomy AG
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Ceconomy AG
XETRA:CEC
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Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining this CECONOMY AG conference call. [Operator Instructions]. I would now like to turn the conference over to Stephanie Ritschel, Vice President, Investor Relations. Please go ahead.
Good morning, everyone. And welcome to our Q2 results call. With me today are CEO, Bernhard Düttmann; our CFO, Karin Sonnenmoser; and the CEO of MediaMarktSaturn Retail Group, Ferran Reverter. They will guide you through today's presentation. Before we start, let me briefly address the usual formalities. Firstly, please be aware that this call is being recorded. A replay will be available on our website later today. Secondly, please keep in mind that today's presentation and potentially also some answers to your questions during the Q&A session, may contain forward-looking statements. For additional information in this context, please refer to the disclaimer. But now, let me hand over to our CEO. Please go ahead.
Good morning, everyone. And thank you for joining today's call in these challenging times. I can tell you, these are challenging times. I'm sitting in the room here, and everybody not talking is wearing mask. I've never seen that before. I will kick off the presentation with a review of the second quarter. I will then pass over to Karin, who will guide you through the financial and the revised outlook for the full year. Ferran then will give you an update on our operations, especially in connection with the corona crisis. As in the past, we will wrap up today's call with a Q&A session. Ladies and gentlemen, I don't need to tell anyone here on the call that the past weeks have been extraordinary. The current corona crisis drastically affects every one of us, personally, professionally and socially. Many parts of the industry worldwide is suffering. The economy has been going through challenging times. The coronavirus caused a temporary standstill of almost the whole of our stationary business in March. That is the worst you can think of for a retailer. All this happened after CECONOMY had started off very solidly into this new financial year. Just a quick recap. The 2019 Black Friday season was successful. In addition, we made sound operational progress across our strategic initiatives in the first quarter and thereby laid the foundation for a solid full year. In January and February, we continued the positive trend of the first quarter, and we're fully in line with expectations. In fact, overall, sales and earnings developed very well with an accelerating momentum. This picture completely changed in March. COVID-19 started to quickly spread across Europe. In compliance with local government instructions, we gradually had to shut down most of our stores. Mid-March, the negative effects of the corona crisis on our business became noticeable group-wide. Against this backdrop, we had to withdraw our guidance for the current business year. In terms of crisis, decisive action is needed. We reacted immediately. So what did we do? Well, most important, we immediately implemented comprehensive health, safety and protection measures for our customers and employees. On the operations side, I'm very proud of our colleagues who have proven an incredible commitment to quickly, quickly refocus the commercial activities and resources to the online channel and thereby ramp up our online business. To mitigate the impact of the store closure on earnings and liquidity, we also have implemented several short-term measures. Later, Ferran will shed more light on this. I'm pleased to say that the teams at CECONOMY and MediaMarktSaturn implemented a successful proactive crisis management to mitigate the COVID-19 impact. In addition, we took decisive steps to increase our financial resilience. We had drawn down our bank lines immediately, and we successfully secured a revolving loan facility of EUR 1.7 billion, which is made available by KfW with an 80% participation, and on our partner banks with another 20% participation. We are pleased of the high level of support from the German government, KfW and our partner banks. One condition of the loan agreement is that CECONOMY suspends dividend payments for the duration of the credit facility. The term has been set until December '21, with a 1-year extension option at the discretion of KfW. Furthermore, Karin, myself as well as the management Board of MediaMarktSaturn took the decision to waive our short-term performance-based remuneration for the current financial year. Likewise, the short-term incentive for the second management level of the company will be reduced for this year. This new credit line comes on top of our already existing facilities of EUR 980 million. I firmly believe that in times like this, short-term financial flexibility is crucial. This syndicated loan serves as a backup line to cover a worst-case scenario of the COVID-19 pandemic. If the economy continued to reopen, and we do not move into a second shutdown scenario, we expect to draw, if at all, only a very limited amount from the new syndicated loan. However, if you were to move into a second COVID-19 wave, which we all hope does not happen, we would be well prepared to weather this additional storm. Based on the experiences we have gained during the lockdown in March and April, our updated assessment of a worst-case scenario has concluded that EUR 1.7 billion will provide sufficient flexibility and safety. Let's continue now with a quick view on our second quarter performance. As already mentioned before, we delivered a very good performance in January and February. But in March, the corona crisis posed a serious challenge. Despite a remarkable doubling of pure online sales in March, it was not sufficient to compensate for the loss of sales from the brick-and-mortar business. This was coupled with a negative margin development. As already said, we successfully implemented short-term countermeasures, but we were all aware that we are in a business with a high operational leverage. For typically higher-volume business facing this lack of sales, a substantial impact on the bottom line is inevitable. On top of all that, we had to book an impairment of our Fnac Darty stake of around EUR 268 million in the second quarter, which additionally impacted our reported EBIT. To wrap this up, let's take a quick look at the 2 headline figures for the second quarter. As you already know, the negative effects of the pandemic are already reflected in our overall financial performance. Sales adjusted for currency effects and portfolio changes recorded a decline of 6.6%. Accordingly, adjusted EBIT was down by EUR 157 million compared to last year. Recently, the gradual reopening of our stores was an important step towards normality in our business. More than 90% of our stores across the group are now open again. Given the widespread closure throughout April however, we expect Q3 to be again impacted by COVID-19. Yet in April, our mitigating cost measures proved successful to dampen the negative effects. We continue to tackle the crisis with determination, and we will use our learnings from the crisis to accelerate CECONOMY's transformation. Let's now have a look for the financials, and I hand over to Karin.
Thank you, Bernhard, and good morning to everyone on the call. Let me guide you through the quarter numbers in detail. Total sales came in at around EUR 4.6 billion in the second quarter. There was one reason for the decline that we faced in this quarter, the store closure in March. Thus, for your background, combined sales in January and February, also adjusted for currency effects and portfolio changes, were up to 3.7%. Momentum was completely intact at that time. High sales countries such as Germany, Italy, Spain and Poland were hit hardest in March. But countries not affected by closures such as Hungary, the Netherlands and Sweden, developed positively in March. Let me visualize the COVID-19 impact on sales in the curve of the second quarter with the waterfall diagram on the next page. This should give you a clear view on the dynamics in this context. Last year, sales came in at around EUR 5 billion in the second quarter. In January and February of this business year, performance was strong especially in the important German market, Austria and Turkey. The online and the Services & Solutions business also showed solid growth rates. In total, sales increased by 3.7% in the first 2 months. In March, the picture was completely different. Brick-and-mortar sales sharply dropped due to the closed stores. Based on our focused set of measures, I will come back on this in a minute, we were able to strongly boost online sales in March. However, this could not fully compensate the drastic decline in brick-and-mortar. As a result, group sales dropped by around 28% in March. Again, considering currency and portfolio effects, this finally led to minus 6.6% in group sales compared to last year. In the second quarter, online sales, adjusted for the Greek MediaMarkt business, increased by around 23.7% compared to last year. If you also adjust for iBOOD, online sales even increased by 26.9%. Since the beginning of COVID-19 trials, we have increasingly focused our sales activities and our resources on the online channel. This also includes the shipment from stores to support online sales. Our efforts have paid off. The figures speak for themselves. Online trading has been particularly strong in the last weeks with pure online sales, up almost 100% in March, which gained further momentum in April. Ferran will shed some more light on the current online performance later on. In contrast to the online business, our Services & Solutions offering was affected by the COVID-19-related store closures. After double-digit growth rates in January and February, Services & Solutions sales in the quarter came in on prior year's level. To put some more flavor on the different categories, the second quarter saw positive development in the progress of extended warranties and insurances, whereas other categories in the Services & Solutions segment declined. Obviously, more store-related services were impacted by the store closures. Let us now move on to Slide 14 for a view on gross margin, OpEx and EBIT. In the first 2 months of the quarter, we saw a positive gross margin trend. In fact, the gross margin was almost stable compared to prior year. In March, however, the gross margin declined mainly due to COVID-19-related effects, including product and channel mix effects and higher delivery costs on the back of the strong growth in the online business, and not to forget the lower income from Services & Solutions in March. In total, this led to a decline in the gross margin of 230 basis points in the second quarter. Initial savings in connection with the recently introduced COVID-19 cost measures had a positive effect on earnings, particularly in the areas of personnel and marketing. We expect that the full impact of these savings would materialize in April. In addition, savings from the cost and efficiency program continue to take effect and supported earnings in the quarter. All in all, adjusted EBIT dropped sharply in the second quarter to minus EUR 131 million compared to plus EUR 26 million last year. Basically, all regions contributed to this negative trend.In DACH, Germany recorded a significant decline in earnings. This is mainly due to a negative sales and margin development in March as a result of the COVID-19-related store closure. In addition, a provision for legal risks in connection with contractual penalties had a negative impact on earnings. Positive factors in the second quarter were lower material and personnel costs and initial COVID-19-related savings, particularly in the area of marketing. The introduction of short-time work in Germany and Austria was not yet earnings effective and will only do so from April onwards. Earnings in Western and Southern Europe were also impacted by the COVID-19-related pressure on sales and margin in Italy and Spain. Although our stores in the Netherlands were opened with reduced store opening hours in March, earnings also declined in the second quarter. In Eastern Europe, earnings declined as well, which was exclusively due to the continued earnings weakness in Poland, which worsened in March as a result of the corona pandemic. In the segment Others, earnings in Sweden were below prior year, which was driven by impairment of right-of-use assets of the Swedish country organization.Let's now move on to Slide 15. You might recall that I had already flagged the risk of an impairment related to our Fnac Darty investment in our Q1 call. Well, due to the sharp decline in stock markets, our investment in Fnac Darty was subject to an impairment hit at the end of the quarter. This resulted in an impairment of around EUR 268 million in the second quarter, which was partly offset by our share of Fnac Darty's result of around EUR 34 million. The total earnings effect related to associates therefore amounted to around minus EUR 234 million. Finally, we have to consider EUR 3 million of trailing restructuring expenses related to the reorganization and efficiency program. Consequently, reported EBIT stood at minus EUR 368 million in the second quarter. Let us now look at the bridge from EBIT to EPS on Slide 16. Please keep in mind that we now see the report figures also including the effects from IFRS 16 in the current period. Earnings before taxes declined by EUR 424 million to minus EUR 391 million in the second quarter. Next to the lower operational earnings, this decline is due to a lower net financial result, which can be explained with higher interest expenses, mainly due to the recognition of the interest component for operating leases under IFRS 16. Moreover, the prior year, the financial result benefited from a higher METRO dividend and valuation gain related to the 5.4% stake still held at that time. Moving on to taxes. On a 6-month basis, the tax rate stood at minus 36.6%. This is basically a mere technical figure. The negative tax rate is essentially due to the Fnac Darty impairment. For this financial year, given the current circumstances and the Fnac Darty impairment, we expect the distortion in the tax rate. For the coming financial years, however, we continue to expect the underlying tax rate to develop towards 35%. All in all, on the back of the corona-induced lower operational earnings and the Fnac Darty impairment in which the minorities did not participate, earnings per share declined by EUR 0.89 to minus EUR 0.82. Let's go to the cash flow statement. Free cash flow in the first 6 months amounted to EUR 286 million, an increase of EUR 362 million compared to the prior year period. However, this increase is essentially related to the adoption of IFRS 16. Looking at the lease-adjusted free cash flow, which subtract the repayment of lease liabilities for better free cash flow comparability under IFRS 16, we see an increase of EUR 86 million year-on-year. This can be largely explained by the lower net working capital outflow in the first 6 months. This was due to a higher increase in trade payables driven by a higher starting point as of September 30, 2018, and also the temporary extension of payment terms with some suppliers in the context of COVID-19. This effect more than compensated for the higher increase in inventories. With regard to cash taxes, initial suspension measures were still implemented in March, which explains the EUR 15 million reduction. The main effects on the reduction of the cash tax burden, however, are expected in Q3 and Q4. The higher outflow of the other operating cash flow had an opposite effect. This can be explained mainly by restructuring-related cash outflows and the reversal of noncash effects related to the Greek transaction. We have also seen an increase in cash investments. Just to make that clear here. This increase is related to the cash effective investment into the joint venture in Greece in the first quarter. As expected, modernization and expansion investments were clearly below the prior year period. For the full year, we expect CapEx to be below our prior expectations of 1.5% of sales.Let's move on to the outlook. Ladies and gentlemen, we have already talked a lot about COVID-19 crisis today. This extraordinary event naturally absorbs a lot of attention. Limited visibility is one aspect of this crisis. It goes hand-in-hand with a number of things we know, but also with a lot of question marks. Firstly, the facts we know. Our performance in the first 5 months of the year was very solid. We were fully on track to reach our goals for the current business year. And then came March, which was heavily impacted by the corona-induced store closures. The closures also impacted sales and margin in April. However, we successfully implemented cost mitigation measures that helped to slow down the earnings shortfall. As such, the year-on-year decline of the adjusted EBIT in April was materially lower than in March. Also, let me be clear in another point. The current crisis is not putting any cost reduction linked to the reorganization and efficiency program at risk. The program has been implemented, and savings are coming in as expected. As you know, cost optimization will also remain very relevant for us in the future. Secondly, the question marks. Nobody knows how the COVID-19 virus will progress. Are we done with the worst? Will there be a second wave? When can we return to normal life or the new normal one? What will new normal look like? We currently also don't know whether there will be regional or geographical differences in recovery. Any timings, obviously, are questionable. And we also don't yet know if and how consumer sentiment might be affected, and how consumers might shift their behavior as a consequence to the shutdown and the recession. In the wake of these uncertainties, we withdrew our original outlook for the financial year 2019/'20 on March 18. We continuously evaluate the situation and take all necessary measures to safeguard our business. However, due to the dynamics of development, it is currently not possible to make a detailed forecast on the business performance in the coming months. And at this point in time, the effects of COVID-19 on our business for the full year 2019/'20 cannot be predicted with sufficient reliability. Nevertheless, we want to give you at least a rough indication of our view on the financial year 2019/'20. In terms of sales, we now expect a decline in ForEx adjusted sales for the full year. With regards to adjusted EBIT, we expect a significant decline for this financial year. This year's EBIT will include a positive effect of presumably EUR 5 million to EUR 50 million due to the transition to IFRS 16. With this, ladies and gentlemen, I would like to hand over to Ferran now for a business update in the context of COVID-19.
Thank you, Karin, and good morning also from my side. Ladies and gentlemen, in challenging times, we at MediaMarktSaturn, managed to prepare ourselves for the crisis very early on. Our decision taken were based on early indications from our business partners in Asia, but also from inside of our country organization in Italy. An internal task force was already set up in January. And we successfully use the knowledge we gain across all of our markets. Having achieved a sound understanding of the situation, we implemented bold and immediate measures. Bernhard already touched upon about it early today. To protect our employees, our customers and our business, comprehensive health and safety measures, were right at the top of the list. Furthermore, we sharply reduced our cost and established liquidity outflow by taking a number of actions. First of all, we had to introduce short-time work in most of our countries. Across Europe, more than 30,000 employees in stores and administrative units were, and are partly still today, affected. Secondly, we negotiated with our landlords to pause or to postpone rental payments for the time being. On top, we reduced investments in the store expansion and modernization. And we have also negotiated important agreements with our key suppliers including temporary payment shift. Thirdly, we focus on avoiding additional cash outflows. This included, among others, the shift or suspension of brick-and-mortar marketing expenses as well as the deferral of tax payments. No question, we had to react quickly and with quite hard measures. All in all, we are convinced that we did the right things at the right time to mitigate the immediate effects of the crisis. Some of these immediate measures will result in a structural improvement. We expect those to have a sustainable and lasting positive effect on our business. Let me highlight 4 specific fields of action. First, costs. Our costs will not be only sustainably lowered, we will also strive to increase the degree of flexibility of our fixed cost to have more room to maneuver. For example, we want to link the amount of rent for a store to the turnover of the respective store. We have used the momentum of the crisis here to start negotiating structural changes with our landlords. Second, supply chain. We will further adapt and optimize our supply chain to leverage the great growth potential of our omnichannel business model. During the crisis, we already proved how fast and consistently we could switch our supply chain to online. Third, marketing. We will push for a strong shift towards digital marketing and targeted below-the-line communication. Fourth, IT. We will also further improve our IT systems by accelerating the implementation of one inventory and new capabilities, such as ship from store. Also, the service already worked very well in recent weeks. A key factor for us over the past weeks has been the resilience of our omnichannel business model. Shop closures, of course, had to be implemented in compliance with the governmental regulation. We are talking about 87% of our store group-wide that we have had to close in March. We did a great job in refocusing our commercial activities and resources from brick-and-mortar to online, thanks to the commitment, dedication but also creativity of our teams in the individual countries across all functions. The result, pre-online sales more than doubled in March. In April, the figure is even more impressive. Pure online sales grow by roughly 300% on a year-on-year basis. This was supported by shipment from store, which was only possible, thanks to our recently introduced employee app. With this app, our productivity increased massively. Existing customers continue to rely on us. But we also welcome a high number of first-time buyers. In fact, new customer registration in the last few weeks tripled versus the previous year. This is very encouraging. We are now fairly advanced in the reopening process. As of this week, all of our stores across Europe reopened, except Turkey. In our home market, Germany, all stores are back with their entire floor space. During the first days of reopening, we have seen some promising catch-up of sales, especially in Germany and Italy. However, it is clearly too early to fully assess the scope of the rebound. In the early stage of this crisis, we already agreed that despite the challenges ahead of us, we will not let it distract us from the transformation of our business model. As mentioned, I believe that some changes which have been implemented will help us on this path. In order to move ahead, we are pursuing 3 sets of measures. Firstly, we will further extend our omnichannel model. In this context, we have enhanced our online business with our new webshop and consumer app. Both are live in Germany and will be rolled out across all of our countries by mid of next year. The new webshop and the app come with a broad range of new functionalities and have been very well received by our customers. This will also enable us to further increase our online attachment rate where we see significant potential. At the same time, we will play out our omnichannel advantage even more strongly. This include our ship-from-store capabilities, which lead to improved availability and delivery times for our customers while optimizing our working capital. And our omnichannel strengths also include our service portfolio which we will continue to expand. Furthermore, we are improving operations based on advanced data analytics and are accelerating our competencies to become a true smart retailer. That means we will continue to implement new tools that optimize our operations automatically and in real-time, based on big data. Our SMI pressing tool is one concrete example that we have introduced already. Secondly, we will continue to have a tight view on our cost. Our sales and services productivity, we will further improve. We will also continue to optimize our store network and accelerate the rightsizing of spaces, and we will continue to make our cost more flexible. A higher share of performance-based online marketing is one concrete lever here. Thirdly, we are tapping into new income sources. The launch of our marketplace in the fourth quarter of the current fiscal year will allow us to significantly expand our assortment from 2021 onwards. In addition, we will introduce a broad range of new services. One example is the new advertising service for our suppliers, leveraging the digital advertising inventory on our webshop and app. And finally, we will monetize our supply chain capabilities in both directions to our customers, and suppliers. Crisis always come with challenges and opportunities. And at MediaMarktSaturn, we prefer to focus on the latter. But challenges first, of course. Even we have been able to quickly reopen more than 3/4 of our stores, sales are expected to catch up with the time line. A second COVID-19 wave, with all of the related impacts on our business, cannot be ruled out. And given the dire economic outlook, we expect consumer spend to be lower than before of the crisis, also for consumer electronic products. This may be the case for a significant period of time with variations between individual countries. On the other side, we see significant opportunities, which we should be able to leverage as the market leader in our segment. In times of accelerating market consolidation, we will monitor the markets closely and size opportunities that arise to increase our market share. Given the impact of COVID-19 on the retail sector, we will be even more relevant for our suppliers and landlords. Online sales will remain elevated based on changes in customer behaviors and complemented recuperating store sales. And finally, we should be able to leverage while the trends in digitization that come out of the COVID-19 crisis. Home office equipment, for example, is one of the categories where we envisage a strong increase in demand. But there are also other examples like home entertainment or home schooling products. Ladies and gentlemen, to sum it up, we managed to handle the crisis very well. We demonstrated that we can react fast to fundamentally changing conditions. It was that we tackled the right things last year to prepare for tougher times like this. Yes, we are facing very challenging times, but we can say with conviction that we are now a better and more efficient company than when we were 1 year ago. Our omnichannel business model has proven to be very robust and successful. We are on the right track to become customer first choice, to become a truly smart consumer electronics retailer whose product and service offering is unique. So much from my side, over to you, Bernhard. Thank you.
Thank you, Ferran. Ladies and gentlemen, let me briefly wrap up today's call. There are 4 important aspects I would like you to take from this call. Firstly, it is obvious that the mandatory store closures deeply impacted our performance in the second quarter. Governmental measures to fight the virus causes a standstill of the majority of our stationary business. This is particularly disappointing as we had a very solid start into this year. Secondly, it is clear business year. '19/'20 will be far from normal. It will remain exceptional and challenging. This is especially true as we currently operate with limited visibility. We cannot yet predict the long-term implications of the COVID-19 crisis, be it from the expected recession or a structural change on our business. Thirdly, the reopenings are vital for our future performance. Every single store that is up and running helps us. Having now more than 90% back in business so quickly is a great result. We stay alert for health and safety of our employees and our customers. Fourthly, the COVID-19 crisis offers the opportunity to accelerate the successful transformation for CECONOMY. We did this in online already, and we will generally face this opportunity. For us, the bottom line is quite clear. Despite the current situation, we are confident about the attractive long-term prospects of this company. With this, I would like to conclude today's presentation. Thank you for your attention, and I will now turn the call over to the operator for your questions.
[Operator Instructions] The first question comes from the line of Nicolas Langlet with Exane BNP Paribas.
I've got 3 questions, please. The first one, it might be a bit too early, but do you have any comments regarding the consumer behavior in stores that recently reopened? And how do you expect the traffic in-store to evolve in the coming months? Second question, if we take into account the efficiency program, the COVID-19 cost optimization and the help of states, by how much do you expect to reduce your OpEx base in full year '20 compared to full year '19? And I appreciate it's difficult to give a precise figure, but even a broad range would be very helpful. And finally, on gross margin. Are you able to split the 230 basis point decline between the mix effect, delivery costs and the services solution lower sales? And looking at Q3, how do you expect those 3 element to play out?
Well, regarding consumer behavior, what we are seeing these days is that the people is coming back and -- to our store step by step. And we are catching up the sales step by step. So basically, what we see is the conversion is rising up. The average basket size is rising up. But still, we are not in the level before on traffic. At the same time, we are keeping the momentum in the online sales.
Nicolas, well, coming back to your question regarding the gross margin, the COVID-19-related channel shift as well as the stock valuation effects both contributed broadly in the same magnitude to the lower gross margin in Q2. Together, they account for a margin decline of about 1.3% -- percentage points. When you ask how much we expect to reduce the OpEx, well, what we see is that the COVID-related cost savings contributed slightly more than EUR 100 million in April, of which the majority was related to tax savings. However, that's a very generalized number. And keep in mind that this number depends on many moving parts that fluctuate a lot. For example, we continuously reopen more and more stores, and as such, reduce the number of employees in short-time working schemes and start of new marketing campaigns related to the reopening. Also, please keep in mind that a major part of the savings from short-time working in March became earnings effective in April. We have seen or we have here a period shift. As stores are gradually reopening, we would expect April to be the single month with the highest share of mitigation countermeasures. I hope that answered your question.
Yes. Definitely. And just on gross margin, looking at Q3, should we expect an even higher deterioration of gross margin because you will have spent more time during -- under lockdown? Or do you have any initiatives to mitigate the impact?
No, we don't expect a higher decrease in our margins so far.
The next question comes from the line of Volker Bosse with Baader Bank.
Volker Bosse, Baader Bank. Three questions. First question is about your guidance. I would ask for a bit more granularity. It's clear nobody knows how COVID-19 will play out in the rest of the year. However, I'm sure that you're working with different scenarios. And yes, what kind of sales decline ranges you have in your model? What is the upper? What is the lower end of your scenario? And yes, kind of range would be helpful also in regards to earnings as an outcome of the sales scenarios. Second question. Yes, I would like to try it also on productivity and frequency. And I know it's early days, but however, kind of indication, are we at 10% to pre-crisis level? Or is it 30%? So what means people come back? Where do we stand? I know it's ramping up step by step, but however, perhaps any indication would be helpful. And third question would be on the supply chain. Do you expect any supply chain disruptions in the course of the year due to, yes, to limited production capacities in China, in Asia, in general? Any upcoming information on that?
Volker, I take your questions. Number one, in regard to the guidance. Definitely, we have scenarios, but it doesn't make sense to share these scenarios because they are so broad and there are so many issues to look at, and we don't actually don't know whether we get a second wave or whatsoever. For the time being, we are quite happy about the ongoing business in our stores. We have seen the people queuing up in front of the stores to get into the stores, which clearly showed that our store network has a big relevance to the customers. And we also could see that we had, in the beginning of -- in the first days of each store, we had a high sales number. So apparently, there's a lot of pent-up demand which was hold back by the crisis, and now the consumer are coming back and are actually buying. So for that reason, it's also very difficult to predict what the longer-term trends will be, when these kind of pent-up demand is coming down to a normal level of sales behavior or buying behavior. But I think that should be answering that in the beginning, we had a strong ramp-up of every store once we open the store. The third question, supply chain. I think Ferran need to complement here my comment. But the important thing is that's what Ferran already highlighted that in January, when we saw the crisis coming, we increased some ordering of products in order to prevent that we have shortcomings on product supply. But here, Ferran, I would ask you to give some -- to shed some more light on this one.
Okay. Regarding supply chain, well, you know that we have a clear plan in supply chain that we were announcing moving to 1 inventory, to 1 platform that it will be based -- and NDCs, local hubs and our stores. So what we have seen at the beginning of the crisis, we try to ramp it up, our online warehouses, and one of the bottlenecks were the inbounds. And this is what we were announcing during the call that we were very fast creating the ship from store with our employee app that help us to scale a lot our supply chain. So this is obviously an interim solution for the time being, but it's part of the project that we will deploy during how we announce in the next couple of years. So all in all, what we show that our supply chain is better resilience, and we can really adapt to the momentum.
The next question comes from the line of Juergen Elfers with Commerzbank AG.
Yes. I have a few. Maybe we can go through them step by step. Let me just, first of all, ask Karin. On the cost savings of in excess of EUR 100 million, Karin, you said the majority related to tax savings. Can you please share some background on those tax savings? And by when will these postpone taxes as well as postponed rents have to be paid out?
Juergen, sorry, I think you misunderstood me. I said tax personnel expenses, not tax.
Personnel expense, sorry.
Right. Right. Right.
Indeed, I understand it. So by when will those postponed rents then affect the P&L?
Regarding the tax postponement or...
Rent.
Rent?
Yes, regarding -- can you share with us some background on the tax components that you announced in the -- I believe it was on 17th of April when you announced some of the cost-cutting measures.
You lost me a little bit. Well, I start. Well, actually, in the current fiscal year, we aim to achieve effective savings in a double-digit million amount. We postponed tax and -- but we expect the major part of the tax postponements in Q3 and Q4. Regarding the savings in general, you can -- we are sure that the peak of the cost savings we will see in April. And then we -- with the reopenings of the stores, the cost savings will go down because the majority of the cost savings is coming from short time work and the reduction of the personnel expenses.
Okay. I refer to this note that I cited. As of 17th of April, you said with the respective government bodies, CECONOMY has agreed the deferral of taxes such as VAT, corporate income tax, and trade tax. And my question just related on that background. Can you share some more light on that?
Juergen, can I answer this one? This is the liquidity measure. That was a liquidity measure as a first reaction to the crisis because when you don't have any sales, and that was the sentiment in the very beginning, that we lose a lot of sales because we didn't know that we could ramp-up online sales as quickly as we did. So we then had to -- we immediately worked on deferrals of payments. And these deferrals were number one, tax payments of VAT, where we got the government approval to postpone these payments. And number two, we headed the same way on rent. So we discussed with our landlords postponement of rental payments, so they were deferred as well. And some of them, we also could negotiate reductions or different things. And the last thing, what we also did then was that we had -- what? no, no, no. That's already -- suspending rent, yes. And the -- that still is the liquidity part, sorry.
[indiscernible]
So that was taxed, and that was rent. Then we worked on cost-cutting expenses, which was partly marketing expenses and other expenses we could immediately stop paying out and where we basically could stop contracts. That was immediate -- an operational measure to also reduce our cost base. With the coming -- with the business coming back, we definitely have to -- we have to pay back the deferred rent payments. We have to pay out and we also have to pay the taxes to the government. So that is just an interim liquidity measure, what we had. For the rental payments as such, as a cost-saving measure, we are renegotiating rental contracts, as Ferran has stated, to also have it more based also on sales-related rental payment. So we try to renegotiate our contract to that direction. And number two, some landlords also waived part of the rental obligations so that we have reduced burden from rental payments as such.
I just only flag this tax issue and the deferral of other payments because I was not sure I wanted to actually look on the cash flow of the quarter and by how much the slide with the free cash flow bridge has been positively affected by such postponements or other majority parts to pour in only from Q3 onwards.
I think the biggest impact on cash flow statement was from our big suppliers. We have renegotiated also some delays of payment that has a big impact on the net working capital, which you could see on the tax payments, we had a deferral of about -- so sorry, the number -- even the numbers for the payment terms, which resulted in a deferral of close to about EUR 400 million. On the tax payments, it's a lot lower, the impact is a lot lower.
EUR 15 million.
So it's EUR 15 million on tax payments, I see here.
Okay, okay. Well, then maybe, if I may, can I just ask a question for Ferran? I believe on Slide 22, you highlighted some of the initiatives, Board immediate measures, and I'm a bit stunned about the number of employees in short-time work. Maybe Ferran, you could share some light on it? At the end of last year, in the annual report, you reported 50,000 employees -- headcounts, that is. And of the 55,000, just over 30,000 have been in short-time work. Is that correct? And how come the number has not been much higher?
Is that correct? Well, the question is that we had to use some people as well to do ship from the store in our stores. This is the reason. This is the reason why.
But the 30,000 are just only 55% of the total number of headcount people. I would have thought this number -- I would have thought this number could have been significantly higher.
Yes. As a starting point, in average, we were going to 80% to 85%, okay? But this was varying through the corona pandemic because when we started with ship from store that the orders in the stores were very high, and it is why we needed more people in the stores.
Which brings me to the second question. Now we see a sharp uplift in pure online sales. Obviously, that is a clear sign -- or maybe let me ask you whether this is a clear sign of functioning processes in dealing with a 300% increase in such orders? Or maybe put it differently, is your background system that supports the sharp uplift in online. Is that being supported by a cloud in order to deal with significant demand uplift? Has that been a proven success already during last year's black week? And is CECONOMY, in dealing with such online uplift, well prepared with respect to the processes that work in the background?
Yes. Absolutely. You cannot do this ramp-up without the right processes in the cloud. Absolutely. You are totally right. Yes. This is why we were trying to explain today that it is a big success.
Actually, Juergen, it was a good opportunity to see that we -- on Black Friday, we have a high online traffic for a day or a week. This time, we had for a longer period and the system made it. So we are -- the systems are much better in these days to get this done effectively. And we also learned how we can further improve our processes in our online business.
If things -- are these clouds -- I believe, in order to deal with large amount of customer orders at the very same time, you probably need to have a cloud behind it. Is the cloud the key backbone across all countries already?
Yes. Well, we are bringing all of the systems into the cloud, of course. Otherwise, you cannot handle. Absolutely.
Okay. Good to know. Then just a final one, also for Ferran. You said you wanted to launch a marketplace in Q4 '19/'20. And you would, hence, establish a new source of income. Could you please be so kind as to share with us where you stand in developing the marketplace platform and framework?
Well, we were saying in the presentation that we will launch in the last quarter of this fiscal year the marketplace in Germany, where we will test, because as you can imagine, it's -- yes, it's a lot of new things with new suppliers. And this, what we are saying, can generate new revenue streams, and I was already stating that, that can be in marketing, in supply chain and obviously, in commissions.
The next question comes from the line of Fabienne Caron with Kepler Cheuvreux.
Three quick questions from my side. First one for Karin. Can you explain the main moving parts behind the lower decline in gross margin you expect in Q3? I can see maybe services, but I was wondering what's happening as well from the discount or promotional sides to get the customers coming back to your store? The second question would be for Ferran. What do you believe will be the share of online at the end of the year for the group? How do you expect the growth to develop? And you're talking about stores fulfillment. Does it makes sense, from an economic point of view, to do stores fulfillment because I think it was not really profitable from a cost point of view? And finally, Ferran again, for the marketplace. How will it work? Will you prevent vendors from selling products that are sold through MediaMarkt directly?
Fabienne, I will start with your question regarding the decline in the gross margin. Regarding April, I mean, the year-on-year adjusted EBIT decline was materially lower than in March where we see. And the reasons are that we see a substantial decline in our gross margin in April compared to the prior year, mainly based on the ongoing channel shift, lower share of Services & Solutions online and a higher delivery cost due to a pure e-commerce sales in most countries. So I mean we -- to summarize that, I mean, we expect a substantial decline in our gross margin in April compared to the prior year. That's due to more days of store closure in April. We see a strong channel and product shift effect as well as the headwinds for income from Services & Solutions, as I just mentioned before. I hope that answered your question.
Yes. I was not thinking only April, I was thinking for the whole quarter.
Well, the development of the gross margin for the whole quarter is depending on the consumer sentiment and all the developments in the stores. That's -- please understand that we are not able to predict that at the moment. I mean we have the first weeks open, and we just have to see how the development is going further.
Okay. So it means -- I misunderstood because I thought one of the first question, you say you don't expect a higher decrease in gross margin in Q3 compared to Q2.
Yes. We expect more or less the same decline. Let's put in this way, we don't expect a higher decrease in the gross margin in Q3.
Okay. Regarding online and in-house sales. We expected that we will go between 15% and 20%. And mid-term, between 20% and 25%. Regarding the second question, the ship from store. Well, for me, the ship from store is a unique capability. I mean it improved availability, delivery time and working capital. And it's really extremely helpful that in this momentum of crisis or as well in Christmas campaign or in big campaigns, really reduced the risk of the indices. As well, it helps to create a new customer proposition that is the same day of delivery or 2 hours delivery that will make us even more competitive versus our competitors. And at the end, if you create the right process with digitizing the tools, we are using our existing employees already from the stores. So we are trying -- is right that obviously, NDC for parcel products, in principle, there will be always more efficient. But all in all, we are closing the gap. And we have a clear rules when we need ship from the store and when do we need our NDC.
Okay. So it's not a temporary measure, it's here to stay then?
Can I just...
Sorry, I can't...
Is it here to stay.
I was saying it's not only a temporary measure, it's here to stay. This is something you will continue to develop, shipping from store?
Yes, yes. Absolutely.
Fabienne, there's something to add. The ship from store allows a wonderful capability because that allows services to put on top to the products. For example, pre-installations. It's perfect to do it in the stores and then ship from store to the customers. That is exactly what is important for the omnichannel model that you basically mix your capabilities in the online channel and in the brick-and-mortar business.
And regarding marketplace. Well, with marketplace, we will enlarge the assortment that we have today, obviously. So our partners are pretty excited on this, that they will have the capability to even have more, yes, SKUs in our -- it's true that we need to handle very well the pricing here. And it will help extremely to introduce new categories. That will give much, much more speed, much more speed.
The next question comes from the line of Clement Genelot with Bryan Garnier.
Two questions from my side, if I may. The first one is, do you fear that the new social distancing measures implemented in stores might restrain the set of services and extended warranties going forward in the a world post-COVID-19? And my second question is on in terms of potential payment of bonuses. We saw in food retailing and also at Fnac Darty that the group's will pay some bonuses to at least the warehouse employees or even in-store employees that continue to work during the outbreak. Do you intend to do the same? Or do you face the demand from unions to do the same?
Clement, the first one was what exactly the measures for the payment of bonuses or -- sorry.
That was the second one.
The second one?
The second question was on the payment of bonuses. Do you intend to pay some bonuses to employees [ because they ] keeps working?
Ferran, that would answer -- Ferran?
We will have a look.
No. We will have a look at. No.
And the first one was the question regarding measures, if I understood that right. Saving measures of what?
Because your plan will relies on the services that extended warranties in stores. But do you think that the new social distancing measures could hamper these ambitions because I guess employee will not be eager to be in the store for too long or remain too close to salespeople.
I think I got your question. We are -- number one, we are very happy to -- that we have the stores open now, and then we can put the services back -- bring back the service to our customers. It is right that we need to have -- that we keep -- that we have to keep the distance to the customers. But despite this distance, it's possible to do the services and to ramp up the services to the old level. And actually, in January and February, we were really successful in selling services, and that has -- that was a very good development at that point in time, and we want to catch up to this again with services. And we feel that we also -- we have organized our stores in a way that we can do that, that we can implement it.
That was the final question for today, and I hand back to Stephanie Ritschel, Vice President, Investor Relations, for closing comments.
Ladies and gentlemen, this concludes today's results call. Thank you for your time and questions. As usual, in any case you have any follow-ups, please feel free to contact us at Investor Relations. We look forward to talking to you. Take care, stay healthy and bye-bye.